Homework 1

The modern eurocurrency market was born shortly​ after:
World War II
The reference rate of interest in the eurocurrency market is​ the:
LIBOR
The theory that suggests specialization by country can increase worldwide production​ is the theory of __________ ___________
Comparative advantage
Which of the following factors of production DO NOT flow freely between​ countries?
A. raw materials
B. ​(nonminus−​military) technology
C. financial capital
D. All of the above factors of production flow freely among countries.
A
Of the​ following, which would NOT be considered a way that government interferes with comparative​ advantage?
A. other nonminus−tariff restrictions
B. quotas
C. managerial skills
D. tariffs
C
__________ ___________ created the concept of absolute comparative​ advantage in _________________
Adam Smith, 1776
Which of the following is not always understood by MNE​ management?
A. Political risk
B. ​Culture, history, and institutions
C. Foreign exchange risk
D. Financial instruments
B
World War I caused the suspension of the gold standard for fixed international exchange rates because the​ war interrupted the _______ ____________ _________ _________.
free movement of gold
The post WWII international monetary agreement that was developed in 1944 is known as​ the _________ _______ __________.
Bretton Woods Agreement
Another name for the International Bank for Reconstruction and Development​ is the ____________ _____________.
World Bank
The International Monetary Fund​ (IMF):
A. in recent years has provided large loans to​ Russia, South​ Korea, and Brazil.
B. was created as a result of the Bretton Woods Agreement.
C. aids countries with balance of payment and exchange rate problems.
D. is all of the above.
D
One of the innovations introduced by Bretton Woods was the creation of the Special Drawing Right or SDR. The SDR is an international reserve asset created by​ the _____________ ___________ _______________.
International Monetary Fund​ (IMF)
Since 2009 the​ IMF’s exchange rate regime classification system uses a​ “de facto​ classification” methodology. Under this​ system, a country that has given up their own sovereignty over monetary policy is considered to​ have _____________ ____________.
Hard pegs
Since 2009 the​ IMF’s exchange rate regime classification system uses a​ “de facto​ classification” methodology. Under this​ system, countries with​ “fixed exchange​ rates” are considered to​ have _____________ ____________.
Soft pegs
A small economy country whose GDP is heavily dependent on trade with the United States could use​ a ____________ ___________ _____________ with the United States exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.
Pegged exchange rate
Since 2009 the​ IMF’s exchange rate regime classification system uses a​ “de facto​ classification” methodology. Under this​ system, currencies that are predominantly marketminus−driven are considered to​ be _____________ ____________.
Floating arrangements
The authors discuss the concept of the​ “Impossible Trinity” or the inability to achieve simultaneously the goals of exchange rate​ stability, full financial​ integration, and monetary independence. If a country chooses to have a pure float exchange rate​ regime, which two of the three goals is a country most able to​ achieve?
A. full financial integration and monetary independence
B. exchange rate stability and full financial integration
C. monetary independence and exchange rate stability
D. A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.
A
China today is a clear example of a nation that has chosen the following policies​ EXCEPT:
A. control and manage the value of its currency
B. full financial integration in an attempt to stimulate its domestic economy
C.restrict the flow of capital into and out of the country
D. conduct an independent monetary policy
B
According to the terminology associated with changes in currency​ values, which of the following choices is the case when a​ currency’s value relative to other currencies is changed by a​ government?
A. devaluation and revaluation
B. depreciation and revaluation
C. depreciation and appreciation
D. devaluation and appreciation
A
Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union​ (EMU)?
A. The fiscal deficit should be no more than​ 3% of GDP.
B. National birthrates must be at 2.0 or lower per person.
C. Nominal inflation should be no more than​ 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year.
D. Government debt should be no more than​ 60% of GDP.
B
The countries that use the euro as their currency​ have:
A. agreed to use a single currency ​(exchange rate stability​), allow the free movement of capital in and out of their economies ​(financial integration​), but give up individual control of their own money supply ​(monetary independence​).
B. gained control over their own money supply ​(monetary independence​), allowed the free movement of capital in and out of their economies ​(financial integration​), but give up exchange rate stability.
C. agreed to use a single currency ​(exchange rate stability​), allow individual control of their own money supply ​(monetary independence​), but give up the free movement of capital in and out of their economies ​(financial integration​).
D. none of the above
(answer with just the letter)
A
In January 2000 Ecuador officially replaced its national​ currency, the Ecuadorian​ sucre, with the U.S. dollar. This practice is known​ as ____________.
Dollarization